The
Dow Jones Industrial Average
advanced 394.18 points, or 1.5%, to 26,797.46 this past week, while the
S&P 500
rose 1.8% to 2978.71, and the
Nasdaq Composite
climbed 1.8% to 8103.07. Those gains followed last week’s 2.8% rise in the S&P 500 and marked the first two-week winning streak since July.

Why did the market soar? Not because of the economic data, which still paint the picture of a decelerating U.S. economy. August’s payrolls report came in light, and would have been even worse if not for a big boost from census hiring. The Institute for Supply Management’s manufacturing index fell below 50, signaling a full-blown contraction in industrial activity. But the U.S. and China finally set a date to go back to the bargaining table on trade—and that was more than enough good news to last the week.

Now, do we believe that the U.S. and China will resolve their differences next month? Hardly. Will a single tweet by President Donald Trump scuttle talks before they even begin? Probably. Yet the news was enough for the S&P 500 to blow through resistance at 2840 and finally escape the range it had been stuck in for about a month. And that suggests more upside could be on the way.

It certainly helps that investors had been expecting the worst. The percentage of bears in the most recent American Association of Individual Investors survey outnumbered bulls by nearly 11 percentage points. It’s an improvement from the previous week’s 16-point difference, but still a plethora of pessimism. Need more evidence? Citigroup’s Panic/Euphoria Model has edged ever closer to panic. Sentiment that bad implies a 95% chance of market upside over the next 12 months.

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That worry has been reflected in the market, too, where investors have gravitated toward the least-volatile stocks. The S&P 500 Low Volatility index has returned 12.5% over the six months ended Sept. 4, outperforming the S&P 500’s 6.3% return by more than six percentage points. That, observes the Leuthold Group’s Jim Paulsen, is one of the strongest six-month periods for low-vol stocks since 1989.

In the halcyon days before the financial crisis, such outperformance signaled more trouble ahead. Since 2008, however, strong performance by low-vol stocks, has meant the opposite—a stronger S&P 500 and underperformance for the market’s safest stocks.

“While good low-vol performance used to be a leading indicator of economic and general stock market weakness, in more recent years it has become a ‘contrarian indicator’ like other measures of investor sentiment,” Paulsen explains. “[That] argues for a much more favorable environment for stocks during the next six months.”

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